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Macroeconomic News Roundup: India 5
India @ 100 is an exciting theme to discuss today, when India @ 75 has become the world's fifthlargest economy by nominal GDP and the third-largest by purchasing power parity (PPP). Of this, almost 70% of the GDP is driven by domestic consumer spending. India has also emerged as the third largest startup ecosystem in the world, with 107 unicorns as of September 2022. Now, with the world’s second largest population, and with 12 million people ready to join the labour force each year, what will the Indian economy in 2047 be like?
This will depend on whether the economy can attain growth through investment as well as consumption, which in turn will depend on the creation of good employment opportunities with reasonable wages. For now, optimism about the growth of the economy is muted as India, and all economies for that matter, deal with the challenges of supply chain disruptions, surging commodity prices, and inflation. The impact of inflation for India gets magnified due to a weakening rupee, which is well past the 81 to the U.S. dollar level. The current account deficit at a decade high of around 2.8% of GDP adds to the pressure on the currency.
In the short term, as domestic inflation rules above the acceptable levels, the tightening of monetary policy by the Reserve Bank of India will impact economic activity. The duration and intensity of the Russia-Ukraine conflict will remain an important issue for the global economic ecosystem and a challenge for the Indian economy. Even as several major economies prepare for a recession, or at least a slowdown, the expected fall in commodity prices will help India cut its import bills and strengthen its current and fiscal finances. This may be a temporary positive for India.
In the long term, as India @ 100 unfolds, some strong positive indicators are India’s growing financial inclusion and internet penetration. 78% of Indian population above 15 years of age holds a bank account, and online transactions are on the rise. The strong start-up ecosystem on the rise in the country will contribute significantly to job creation and economic growth. Indeed, for India, the coming decade will set the tone for its economic growth story. This will depend on how well India is able to capitalize on its demographics, how seamlessly the agricultural sector and the rural economy are mainstreamed, and how the evidently growing climatic disorders are managed.
There are several outlooks and opinions on where the Indian economy is headed from here, and the Financial Symposium of Trade Winds 2022 is an attempt to provide a platform for a hearty discussion on India @ 100.
